Risky cable TV idea went terribly bad

Published December 02. 2012 12:01AM

While it may have seemed a good idea at the time, the decision by Groton Utilities to get into the cable communications business was a colossal mistake. The idea for the city-owned utility to get in the cable TV business emerged in the late 1990s. GU already had great success providing electric and water services. At that time the idea was to serve customers unhappy with Comcast, the cable company approved by regulators for the service area. Few companies were trying to build networks to compete with existing cable utilities. Potential competitors saw the cost as prohibitive and the potential for peeling off customers from the franchised cable TV utility too uncertain. But Groton city officials felt their well-run municipal utility, which unlike private corporations did not have to make a large profit, could pull it off.

By the time Groton Utilities received state regulatory approval to launch its Thames Valley Communications system in 2004, the communications landscape was changing rapidly, providing both opportunities and reasons for concern. By 2004 broadband service, with its ability to provide much higher Internet connection speeds, had become more affordable and was rapidly displacing dial-up. With its new system, Groton Utilities saw the opportunity to provide high quality broadband service, in addition to cable TV.

But headlines of the time also noted digital communication was a highly volatile and quickly changing business. No one could predict its evolution as computer, mobile devices, television and cell service combined and overlapped. In retrospect, the rapid technical changes between 1999 and 2004 should have provided a warning that this unpredictable industry was not well suited for a municipal utility.

Paul Yatcko, director of Groton Utilities and president of Thames Valley, concedes as much.

"The broadband industry subsequently proved fast-paced and highly competitive, much beyond what we expected. As a municipality, our strengths lie in more stable industries, such as water and electric utilities," said Mr. Yatcko.

From 2004 to 2008 the utility borrowed heavily to build out its Thames Valley system in Groton, Ledyard, Stonington, North Stonington and Voluntown, including many sparsely populated areas costly to connect. The expectation was that once built, this quality system could rapidly expand its customer base. But by 2008 the state economy was in the grips of a recession, customers had a myriad of communication options to choose from and the business model was failing. Citing proprietary information, Thames Valley will not disclose the number of subscribers, but it was clearly never enough.

Groton Utilities borrowed $34.5 million to build the Thames Valley system, and has repaid $6.8 million. Prior to 2009 bond money - $5.5 million - was used to pay operating expenses. Since then Groton Utilities has subsidized $10.8 million in Thames Valley operating losses, ranging from $2.2 million to nearly $3 million annually.

Last week Groton city Mayor Marian K. Galbraith and Mr. Yatcko announced that Thames Valley had struck a deal to cut its losses. CTP investors, an investment management firm, will pay a token $150,000 for Thames Valley, with the city assuming all the debt. It's a lousy deal, but apparently the best the municipal utility could get. Council approval is pending. Adding to the insult, Groton Utilities paid investment banking firm RBC Daniels $400,000 to find the $150,000 buyer.

We see no alternative. Liquidating the broadband cable system, which would mean dismantling it, does not appear practical. Continued operation will mean continued losses. At least selling stops the bleeding and may save the 23 jobs at Thames Valley, though its future remains uncertain.

Paying off the stranded debt will diminish Groton Utilities' ability to invest in its electric system in the coming years, but the utility is a solid organization and will survive, continuing to send $3.1 million back to the city annually.

Some city residents want to know why they were not warned sooner. But every bond issue was approved at annual freemen's meetings and the sad tale could be traced in city audits. It was in the business interest of city officials not to loudly broadcast the struggles of Thames Valley at a time it was trying to expand the utility and, later, sell it. The fact that the business obligation clashed with the obligation for transparent government is another reason the city should have stayed clear of this risky venture.

No other municipal utility in Connecticut tried this. Now we know why.

The editorial board is composed of the publisher and four journalists of varied editing and reporting backgrounds. The board's discussions and information gained from its meetings with political, civic, and business leaders drive the institutional voice of The Day, as expressed in its editorials. The editorial department operates separately from the newsroom.